Question

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,645,700
Cost of goods sold		1,232,603
Gross margin		413,097
Selling and administrative expenses		610,000
Net operating loss	$	(196,903	)

Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,500 units of T500 at a price of $40 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

	B300		T500		Total
Direct materials	$	400,700	$	162,300	$	563,000
Direct labor	$	120,300	$	43,000		163,300
Manufacturing overhead						506,303
Cost of goods sold					$	1,232,603

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $52,000 and $105,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:

	Manufacturing Overhead			Activity
Activity Cost Pool (and Activity Measure)				B300	T500	Total
Machining (machine-hours)	$	212,253		90,200	62,500	152,700
Setups (setup hours)		131,850		73	220	293
Product-sustaining (number of products)		102,000		1	1	2
Other (organization-sustaining costs)		60,200		NA	NA	NA
Total manufacturing overhead cost	$	506,303

Required:

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

1.
	B300 T500 Total Product margin $0

2.
	B300 T500 Total Product margin $0

	B300 T500 Total % of % of Amount Amount Amount Traditional Cost System % % % % % % Total cost assigned to products $0 $0 $0 Total cost $0 B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: % % % % % % Indirect costs: % % % % % % Total cost assigned to products $0 $0 0 Costs not assigned to products: Total cost $0

Answer 1

Answers 1 Product Margin under Traditional Costing T500 Total B300 Product Margin 251770 161400 413170 2 Product Margin under Activity Based costing T500 Total B300 Product Margin -47175 363472 316297

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost Total T500 B300 Traditional Costing System Direct Material Direc tLabor Manufacturing Overheads Total Cost Assigned to Products Selling and Administrative Expenses Total Cost Amount % Amount % 563000 400700 71.2% 162300 28.8% 73.7% 163300 120300 43000 26.3% 372930 73.7% 133300 26.3% 506230 893930 1232530 338600 610000 1842530

Quantitative Comparison of Acticity Based Cost Assignments Total T500 B300 Activty Based Costing System Amount Amount Direct Cost 71.2% 563000 Direct Material 400700 162300 28.8% Direct Labor Advertisements (Traced) 73.7% 43000 26.3% 120300 163300 52000 105000 66.9% 157000 33.1% Indirect Cost Machining Batch setup 125378 59.1% 86875 40.9% 212253 32850 24.9% 75.1% 131850 99000 Prodcut Sustainind 51000 50.0% 51000 50.0% 102000 Total Cost Assigned to Products Cost Not asigned to the Products Selling and Administrative Expenses 547175 782228 1329403 453000 Others 60200 Total Cost 1782403

Working Notes B300 Total T500 Selling Price Direct Material 19 40 563000 400700 162300 Direct Labor Production in Units Manufacturing Overheads Advertisements (Traced) Selling and Administrative Expenses Maufacturing OH Estimated Labor Dollars Predetermined Overhead Rate 120300 43000 163300 12500 60300 72800 506303 52000 105000 610000 506303 163300 3.10 506303/163300 MOH Activity T500 Total 62500 152700 B300 Machining Setups Prodcut sustaining 212253 90200 131850 73 220 293 102000 1 1 2 60200 Others 506303 Traditional Costing System T500 Total B300 sales 500000 1645700 1145700 Direct Material 162300 563000 400700 Direct Labor 120300 43000 163300 Manufacturing Overheads Total Manufacturing Cost Product Margin 506230 372930 133300 1232530 893930 338600 251770 161400 413170

Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Base Activity Rate 152700 Estimated OH 212253 1.39 131850 450.00 293 51000.00 102000 2 Activity Based Costing System Total T500 B300 sales 1145700 500000 1645700 Direct Material 563000 400700 162300 Direct Labor 120300 43000 163300 Advertisements (Traced) Machining Batch setup Prodcut Sustaining Total Cost Product Margin 52000 105000 157000 125378 86875 212253 32850 131850 99000 51000 51000 102000 547175 782228 1329403 -47175 363472 316297

Note For Any Further Clarification Plases Use the Comment Box.Thank You Very much